We’ve looked at some practical uses of AI in accounting in Part 1, but for AI to truly revolutionize the finance function, it needs to go beyond simple automation and evolve into a genuine partner for finance teams. Experts say this is on the verge of becoming mainstream, but what will it really take? Imagine a world where you press a “Month End” button, and everything is done, leaving only anomaly investigations. Such a shift would be transformative. What follows is next-level AI, a look into pushing the boundaries of what’s possible.

What is a typical month-end process?

The month-end close process generally includes tasks such as:

• Reconcile Bank Accounts: Ensure bank balances match accounting records through bank statement reconciliation.
• Review Accounts Payable and Receivable: Confirm invoices are processed and payments received, with all transactions recorded properly.
• Accrue Expenses and Revenues: Record any unbilled income or expenses that haven’t been documented yet.
• Post Adjusting Journal Entries: Adjust prepayments, accruals, and deferred revenues.
• Inventory and WIP Reconciliation: Compare physical inventory to accounting records, adjusting for discrepancies.
• Fixed Asset Depreciation: Calculate and post depreciation, ensuring compliance with regulations like IFRS16.
• Payroll Reconciliation: Reconcile payroll, including taxes and benefits, with the general ledger.
• Balance Sheet Reconciliation: Reconcile key balance sheet accounts like prepaid expenses and deferred revenues.
• Foreign Exchange Revaluation: Revalue foreign currency assets and liabilities to reflect current exchange rates.
• Intercompany Balance Agreement: Reconcile intercompany transactions and resolve discrepancies.
• Provision for Unrealized Profits: Eliminate unrealized profits from intercompany transactions.
• Financial Statement Preparation: Prepare key financial reports (income statement, balance sheet, and cash flow statement).
• Management Review: Review and finalize financial statements.

Can AI help with these tasks?

While human expertise will always be needed for strategic decision-making, AI can significantly enhance the month-end close process by improving speed, accuracy, and efficiency. Here’s how AI might support month end:

• Automating Reconciliation: AI can automatically match transactions and identify discrepancies, reducing manual intervention.
• Invoice Processing & Accruals: AI tools can capture invoices, identify patterns, and automate accruals.
• Journal Entry Automation: AI can automate recurring journal entries and suggest adjustments.
• FX Revaluation: AI can pull real-time exchange rates and revalue foreign currency balances.
• Intercompany Transactions: AI can match intercompany transactions across entities, simplifying eliminations and balance agreements.
• Predictive Analytics: AI can forecast future expenses or revenues, budget vs actual outcomes streamlining provisioning and forecasting and provide tactical and strategic insight.
• Automated Financial Statements: AI can generate financial reports in real-time, reducing delays and improving accuracy.
• Anomaly Detection: AI can detect unusual transactions or compliance risks by analyzing large data sets quickly.

Risk Management and Segregation of Duties (SoD)

Risk control checks are crucial during month-end close, especially to ensure balance between the general ledger and subledgers, and adherence to SoD. AI can help in the following ways:

• Trial Balance Checks: AI can ensure the trial balance is in order, flagging any discrepancies.
• Subledger Reconciliation: AI can automate the reconciliation of control accounts with subledgers, such as accounts payable and inventory.
• Anomaly Detection: AI is highly effective at identifying unusual patterns, missing entries, or deviations from standard processes.
• Workflow Automation & Alerts: AI can automate the approval process and alert teams to any issues before the close.
• Continuous Monitoring: AI can continuously monitor financial transactions, reducing reliance on manual checks and enabling proactive resolution of discrepancies.

Segregation of Duties (SoD) and SOX Compliance

AI can also assist with SoD breaches and support compliance with the Sarbanes-Oxley Act (SOX):

• Real-time Monitoring of SoD: AI can monitor system access to detect SoD violations in real-time, issuing alerts to prevent potential fraud.
• User Permission Analysis: AI can assess user permissions, identifying conflicting roles and access rights, which is essential for SOX compliance.
• Automated Audit Trails: AI can generate detailed audit logs for transactions, providing transparency and ensuring compliance.
• Continuous Testing of Internal Controls: AI can automate internal control testing, identifying weaknesses and breaches before they become critical.
• Risk Scoring and Reporting: AI can assign risk scores based on user activity or transaction patterns, prioritizing high-risk areas for SOX compliance.
• Enhanced Data Security: AI helps detect unauthorized access and protects sensitive financial data, supporting the security requirements of SOX.

To Be Confirmed

While the benefits of AI in accounting are promising, these claims need validation. Transitioning from curiosity to mastery—like moving from a “Catweasel” to “Spock”—requires seeing AI in action or developing AI solutions that work. With tools like Quandl, Google Big Data, and Vertex AI, the knowledge and technology are already available to make this happen. The future of AI in accounting is not distant, and the journey to mastering it is well underway.

Again, good luck….and if you need a contractor let me know. Best regards RichFM